Crowdfunding JOBS Act helps spur Boulder-based 'stock exchange'

Locals launch Story Stock Exchange to fuel investments in startups

On the heels of Congress passing the Jumpstart Our Business Startup (JOBS) Act, two Boulder companies have launched a crowdfunding-focused stock exchange.

Metzger Associates and Tiforp Business Ventures created SSX: The Story Stock Exchange, a mutual funds-like portfolio of startups that are not large enough to receive financing from banks or venture capitalists.

"I think what we're doing is opening up a whole new generation of public equity," said John Metzger, a co-founder of SSX.

In addition to investments -- which could come from angel investors and crowdfunding sites such as FundingLaunchpad.com and Kickstarter.com -- portfolio companies would receive professional business services from SSX such as digital marketing, investor relations and capital formation. In exchange for the business services, SSX would receive a small equity stake in the portfolio firm.

SSX already has lined up a couple companies for the exchange, Metzger said, adding that a formal announcement of participating companies would occur in the coming weeks. In the long-term, Metzger said he envisions that "dozens" of companies would be involved with the exchange for story stocks, those whose values are based on expectations of future performance rather than a company's assets or income.

The portfolio also would not be limited to tech startups, he added, noting that participants would come from a variety of sectors including cleantech and manufacturing.

"Some of these story stocks are going to be companies that we think can really get somewhere by raising a small amount of money," he said.

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The recently passed JOBS Act also could open the door for more people to get involved with investing in business startups, Metzger said.

"What's always been really frustrating is if you're not an 'accredited' investor, you are prohibited from making investments" in venture capital-like deals, he said. "...The implication is that if you're not a rich person, you're not smart enough to make investments."

That's where crowdfunding comes into play, he said.

Prior to the passage of the JOBS Act -- which President Barack Obama is expected to sign into law later this week -- companies could not solicit funds in exchange for stock options or equity from unaccredited investors.

The legislation, which enables companies to receive money through crowdfunding, results in looser regulations to allow for "emerging growth companies" to raise capital and also to go public.

"This is providing new avenues and access to capital," said Adam Bozzi, a spokesman for U.S. Sen. Michael Bennet, D-Colo., who co-sponsored a crowdfunding amendment.

Bennet's amendment also required companies disclose information such as financial statements and their business condition to potential investors.

However, some have argued that the easing of regulations and the addition of crowdfunding could result in more instances of fraud.

J. Robert Brown Jr., a professor at the University of Denver's Sturm College of Law, said the involvement of crowdfunding could be troublesome for both legitimate companies and investors.

"Investors relying on the crowdfunding exemption may be subjected to fraudulent transactions," he wrote last week on the school's TheRacetotheBottom.org blog. "Even investors purchasing from legitimate companies, however, will incur the risk that they will have to hold the investment indefinitely.

"They likewise will incur the risk that the company may engage in subsequent transactions that dilute the ownership interest and the value of the shares purchased." Contact Camera Business Writer Alicia Wallace at 303-473-1332 or wallacea@dailycamera.com.

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